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encouraged by the Administration's willingness to share the risk of damage to government property with the ELV operators. We commend all the concerned departments and agencies for the months of hard work they put into this effort.

DOT's Office of Commercial Space Transportation continues to work with the other interested departments and agencies in a number of areas that should be coming to fruition shortly. For example, we understand that its work on launch risk assessment will be available within the next month. This timely product should be helpful as we move to fine tune your legislative approach to risk sharing.

Commerce continued to lead informal trade talks with the European Space Agency designed to establish a fair and equitable international competitive environment. In another arena, the Air Force and industry continue to

improve and refine the government range use agreements.

Of considerable importance to us was the State Department's recent reaffirmation of its policy of protecting critical U.S. Technology from potential loss through the launch of U.S. satellites on the Proton launch vehicle. We believe that the same risk of U.S. technology loss, exacerbated by the Chinese Government's thrust to obtain Western launch contracts at any price, will require similar action in support of the U.S. commercial space industry.

Turning now to H.R. 3765, I want to express our deep appreciation of your proposed resolution of the key remaining problem critical to the future of the new U.S. commercial launch services industry. As I testified last September, our single overriding concern is our exposure to undefined and unbounded space launch risks, however improbable. I spoke then of the need for a risk-sharing approach between the ELV companies and the U.S. Government in the remote event that damages resulting from a commercial launch accident exceed the insurance coverage reasonably available in the marketplace. This need has been fully documented in the excellent testimony given yesterday by the AIAA.

A strong precedent exists for the sharing of space launch risks between the U.S. Government and the private sector. Prior to the establishment of the commercial launch industry in 1986, NASA sold launch services to commercial and foreign customers. NASA was authorized to assume the risk of third party claims but required its customers to share the risk by buying $500 million of insurance, an amount later reduced to reflect reduced market capacity. In other words, commercial launch customers assumed responsibility for those losses of third parties which they were able to cover with insurance. The U.S. Government assumed the remote risk of claims beyond this level. In fact, no third party claim was ever filed. In addition, NASA entered into liability cross-waivers with both customers and contractors, under which each party agreed to be responsible for damages to its own property, regardless of fault, and not to sue the other parties for losses incurred as a result of injury or death of its own employees, also regardless of fault.

In our decision to enter this new business, we were hopeful that the NASA precedent would be followed in legislation that would equitably allocate risks between the new commercial launch services industry and the U.S. Government and have proceeded aggressively to develop our business on this basis. If such legislation is not enacted, we may be forced to reassess our decision to expand our business in this market.

As you know, our current agreement with the Air Force requires us to obtain the maximum amount of insurance commercially available at a reasonable price, as determined by the U.S. Government. To the extent available, this insurance must cover all third party risks, all the risk of damage to U.S. Government property, and all losses resulting from injuries to U.S. employees, regardless of fault. However, the "maximum possible loss" from a space launch accident not only far exceeds the amount of insurance reasonably available, but it also exceeds worldwide insurance capacity. This excess of possible losses above the amount of reasonably available insurance would be allocated in accordance with general principles of tort and contract law, which subject us to unbounded risks.

For example, the current capacity of the insurance market to provide for third party personal injury and property damage insurance is between $300 and $500 million. The "maximum possible loss" that might occur to third parties as the result of a launch accident is well above that amount. In the case of post-ignition damage to U.S. Government property, the situation is worse since no identified market capacity for this risk exists today. Yet the "maximum possible loss" that we could incur is very large. In

addition, these risks aggregate with the satellite launch risk insurance requirements, thereby further reducing the already inadequate insurance capacity currently available to cover our customers' loss of their payloads.

I must stress that the risk of "maximum possible loss" is very remote. Were it to occur, however, it could be well beyond the resources of any company to handle. Each contract that we sign in anticipation of your favorable action in this area increases our cumulative risk.

Of additional concern to us is the fact that the current situation puts us at a competitive disadvantage internationally. Foreign launch programs receive substantial support from their governments. Arianespace is held harmless by ESA and the French Government from third party claims above 400 million French francs (approximately $70 million), and, as we understand it, from damage to launch facilities above a level that is significantly less than even the "maximum probable loss". In the case of the Proton and the Long March vehicles, the Soviet and Chinese governments appear to assume all risks and can evidently price below their costs. This support enables our foreign competitors to realize savings in insurance costs that they can pass on to their customers, thereby reducing their prices. They also enjoy a favorable commercial risk environment that facilitates each new investment decision. Our industry needs risk-sharing legislation to enable us to compete more effectively in the international marketplace.

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We believe that a strong commercial launch industry is a key element in maintaining American leadership in space, and is a critical element of our

national space transportation recovery program. Our industry is already having a favorable impact on the national economy and the foreign trade deficit. For example, in 1987 Martin Marietta won contracts worth approximately $330 million dollars for commercial launch services, all of it from foreign customers, or international consortia. According to recent studies, our industry expects to contribute up to $800 million yearly to the U.S. balance of payments, and up to $175 million in direct Federal, state, and local tax revenues. In addition, the commercial launch industry will create or maintain about 8,000 direct jobs in the U.S.

We are aware that the President's recently announced Space Policy Initiatives on launch risk liability differ from the approach being taken in your bill. However, since there is an obvious agreement on the need for action in this area, we hope that an approach acceptable to both branches of the U.S. Government can be developed. A lengthy delay in resolving this critical issue could have a chilling effect on America's growing commercial space industry. We will work closely with you and Administration officials in this effort.

Commenting specifically on Section 4 of your proposed bill as it now stands, we support the equitable allocation of third party risks that it contains. However, we would propose that launch companies assume liability for both private sector and U.S. Government risks up to the "maximum probablę loss," as defined by DOT, or the maximum insurance capacity available at reasonable cost, whichever is less. We are concerned that, as happened

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